The Bank of England launches new term repo facility
25 March 2020 London
Image: Shutterstock
The Bank of England (BoE) has launched a Contingent Term Repo Facility (CTRF) as a temporary enhancement to its sterling liquidity insurance facilities.
The new liquidity insurance tool aims to “alleviate frictions” in money markets in recent weeks, both globally and domestically, as a result of the economic shock caused by the outbreak of COVID-19.
The CTRF allows market participants to borrow central bank reserves in exchange for other collateral.
The BoE says this is a reliable way that banks can gain the necessary liquidity to support overall financial stability as they attempt to balance their books over Q2 quarter-end amid the on-going market distress.
The new facility will remain in place for three months, starting on 24 March, and will bolster the bank’s existing sterling market operations. These include the Indexed Long-Term Repo and Discount Window Facilities.
The BoE is also able to lend in all major currencies through its participation in the central bank swapline network.
The central bank says: “This will also allow participants to use the CTRF as a way to bridge beyond the point at which drawings can be made from the Term Funding Scheme with additional incentives for SMEs – helping to support lending to the real economy as quickly as possible.”
The CTRF’s launch comes days after the UK’s Financial Conduct Authority gave its strongest indicator yet that it would not follow some of its European counterparts in banning short selling.
The market regulator appeared to rule out a lockdown on short selling which it described as a “critical underpinning of liquidity provisions”.
It also follows the BoE's decision to slash interest rates for a second time in recent weeks to by 15bps to 0.1 percent.
The new liquidity insurance tool aims to “alleviate frictions” in money markets in recent weeks, both globally and domestically, as a result of the economic shock caused by the outbreak of COVID-19.
The CTRF allows market participants to borrow central bank reserves in exchange for other collateral.
The BoE says this is a reliable way that banks can gain the necessary liquidity to support overall financial stability as they attempt to balance their books over Q2 quarter-end amid the on-going market distress.
The new facility will remain in place for three months, starting on 24 March, and will bolster the bank’s existing sterling market operations. These include the Indexed Long-Term Repo and Discount Window Facilities.
The BoE is also able to lend in all major currencies through its participation in the central bank swapline network.
The central bank says: “This will also allow participants to use the CTRF as a way to bridge beyond the point at which drawings can be made from the Term Funding Scheme with additional incentives for SMEs – helping to support lending to the real economy as quickly as possible.”
The CTRF’s launch comes days after the UK’s Financial Conduct Authority gave its strongest indicator yet that it would not follow some of its European counterparts in banning short selling.
The market regulator appeared to rule out a lockdown on short selling which it described as a “critical underpinning of liquidity provisions”.
It also follows the BoE's decision to slash interest rates for a second time in recent weeks to by 15bps to 0.1 percent.
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